Bank of America has reached agreement on
yet another outstanding legal matter involving defaulted mortgages, this time
with Fannie Mae. This agreement covers
current and future repurchase obligations on loans with aggregate unpaid
principal balances of $297 billion.
Under the agreement the Bank will repurchase 30,000 mortgages loans
originated between January 1, 2000 and December 31, 2008 and will make a cash
payment to Fannie Mae of $3.55 billion on the repurchase agreements and an
additional $1.3 billion to address servicing issues.
Fannie Mae said in a statement this
morning that the loans to be repurchased had the potential to cause it
significant future losses. The bank will
pay par plus accrued interest for a total of approximately $6.75 billion over and
above the cash payment. Fannie Mae said
this resolution will result in a substantial decrease in its outstanding
repurchase requests in the first quarter of 2013.
As part of the agreement Fannie Mae has
approved the bank's request to transfer servicing rights of close to one
million loans to specialty services.
Fannie Mae said this approval is consistent with its strategy to utilize
specialized loss mitigation capabilities to reduce credit losses on high risk
The bank remains liable for repurchase
obligations arising out of specified excluded defects and certain unresolved
servicing and indemnification issues as well as for some obligations related to
"A favorable resolution of this
long-standing dispute between Fannie Mae and Bank of America is in the best
interest of taxpayers," said Bradley Lerman, Executive Vice President and
General Counsel of Fannie Mae. "Fannie Mae has diligently pursued
repurchases on loans that did not meet our standards at the time of
origination, and we are pleased to have reached an appropriate agreement to
collect on these repurchase requests."
The agreement required approval of
the Fannie Mae's conservator, the Federal Housing Finance Agency (FHFA). Edward J. DeMarco, Acting Director of FHFA
is a major step forward
issues from the past and providing greater certainty in the marketplace, which remain critical FHFA goals as
conservator. I am pleased
the resolution achieved and
thank everyone involved
for their efforts."
According to a statement released by Bank of America, the loans involved
were originated by Countrywide Financial Corporation which the bank acquired in
2008 and by the bank itself. The loans had an original principal balances
totaling 1.4 trillion and the unresolved claims by Fannie Mae for alleged
breaches of selling representations and warranties totaled $11.2 billion of
unpaid principal balances as of September 30, 2012. Payments required by the agreement are
expected to be covered by the Bank's existing reserves and an additional $2.5
billion (pretax) in representations and warranties provision recorded in the
fourth quarter of 2012. The bank said
that the actions described above are expected to reduce its pretax income by approximately
$2.7 billion in the fourth quarter of 2012.
Bank of America also announced that it had signed definitive agreements with
two different counterparties to sell the servicing rights on approximately two
million residential mortgage loans serviced for Fannie Mae, Freddie Mac, Ginnie
Mae, and private label securitizations, with an aggregate unpaid principal
balance of approximately $306 billion. Approximately 232,000 of the loans are classified
as 60+ day delinquent.
"As we enter 2013, we sharpen our
focus on serving our three customer groups and helping to move the economy
forward," said Bank of America Chief Executive Officer Brian Moynihan.
"Together, these agreements are a significant step in resolving our remaining
legacy mortgage issues, further streamlining and simplifying the company and
reducing expenses over time."